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Japan's demand fuels LNG rise

Japan's voracious demand for alternative sources of electricity post-Fukushima continues to drive up prices of liquefied natural gas in Asia.

Japan's voracious demand for alternative sources of electricity post-Fukushima continues to drive up prices of liquefied natural gas (LNG) in Asia.

The increase widens the price gap with other markets, in particular the United States, and gives further incentive for shale gas exports from North America.

Driven by the need to replace nuclear power after its reactors were taken offline following the meltdown at the Dai-Ichi plant in Fukushima last year, Japan paid US$17.56 per million British thermal units (mmBtu) in April, the highest since November 2008. LNG costs Japan about $13 per mmBtu more than buyers pay for natural gas in the United States.

"The spread between North American natural gas prices and Asian LNG prices has been propelled to record levels," said Michael Zenker, a US natural gas analysts at Barclay's Capital (BarCap).

"There may be no better signpost for the complete turnaround in the fortunes of gas supply than the growing number of LNG proposals."

Already, 11 proposals for LNG export terminals have been submitted in the US and a further four in Canada, according to BarCap.

Future exports of North American gas to Asia could benefit UAE companies, too.

Abu Dhabi National Energy Company (Taqa), which owns part of Canadian oil and gas producers WesternZagros, is also aware of the arbitrage arising from the shale boom in North America.

Carl Sheldon, Taqa's chief executive, said last month the company would be interested in exporting its Canadian gas, once export facilities exist.

LNG's surge is also driving up its price premium over coal - already at record levels - abetted by slackening demand for electricity in China, as prices for coal used in power stations have fallen to the lowest in almost two years.

China produces about 70 per cent of its electricity from coal and is the biggest consumer of the fuel. A slowing economy reduced electricity demand growth in April to a tenth of levels seen a year earlier.

Japan's increased use of coal in the first quarter can be attributed to the 2,000 megawatt Soma Joint Power plant coming back online in January and a further rise in capacity is unlikely.

BarCap expects Japanese fossil fuel imports to grow by 17 per cent over the next five years, with LNG imports overtaking coal within that period.

Abu Dhabi exports LNG to Japan from its offshore production and processing hub at Das Island under long-term agreements.

Japan is keen to extend Abu Dhabi's long-term commitments, but the emirate is importing natural gas from neighbouring Qatar, and is building an import terminal at Fujairah.

fneuhof@thenational.ae

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